Answer: spot exchange rate =1.30sf
Explanation:
180 day forward exchange rate =sf180 /$ or $1 = 1.30sf
180 day premium rate = 8%
forward exchange rate = spot exchange rate x 1.08
Forward exchange rate is the exchange rate 180 days from now. We know that the forward exchange rate is calculated by taking the spot exchange rate and 8% of the spot exchange rate. This tell us that forward exchange rate of 1.30sf is equal to spot exchange rate multiplied by 1.08 (which is 1 plus 0.08). We then solve for spot exchange rate by dividing 1.30sf with 1.08 to get the spot exchange rate
1.30sf = Spot exchange rate x 1.08
spot exchange rate = 1.30sf/1.08
spot exchange rate = 1.203703704
spot exchange rate = 1.204sf
The outright spot exchange rate is 1.204sf
We know that the forward exchange rate is calculated by taking the spot exchange rate and 8% of the spot exchange rate.
Given the information below :
180 day forward exchange rate = sf180 /$ or $1 = 1.30sf
180 day premium rate = 8%
But,
Forward exchange rate = Spot exchange rate x 1.08
1.30sf = Spot exchange rate x 1.08
Spot exchange rate = 1.30sf / 1.08
Spot exchange rate = 1.203703704
Spot exchange rate = 1.204sf
Therefore, the outright spot exchange rate is 1.204sf
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